QuidelOrtho Corp (QDEL) 2012 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Quidel Corporation second quarter 2012 earnings conference call. At this time all participants are in listen-only mode. Later instructions will be given for the question-and-answer session. (Operator Instructions) And now I'd to turn the call over to Mr. Randy Steward, Quidel's Chief Financial Officer. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining today's call. With me today is our President and Chief Executive Officer, Doug Bryant, and Ruben Argueta, our Investor Relations Manager.

Please note that this conference call will include forward-looking statements within the meaning of federal securities laws. It is possible that actual results and performance could differ materially from those stated expectations. For a discussion of risk factors, please review Quidel's annual report on Form 10-K, registration statements and subsequent quarterly reports on Form 10-Q, as filed with the SEC. Furthermore, this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast today, July 25, 2012. Quidel undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call, except as required by law.

Today Quidel released financial results for the three months ended June 30, 2012. If you have not received our news release or if you would like to be added to the Company's distribution list, please call Ruben at 858-646-8023.

For today's call, Doug will report on the highlights of the second quarter and provide updates on our product pipeline. I will then briefly discuss our financial results and we'll open the call for your questions.

I'll now hand the call over to Doug for his comments.

Thank you, Randy.

Total revenues for the second quarter at $30.9 million were just slightly better than what we had expected and were a 12% improvement over revenues of $27.5 million in the second quarter of 2011. This was also a 24% improvement over revenues of $25 million in the second quarter of 2010.

While physician visits for influenza-like illness and testing for influenza in the first quarter of this year were much lower than normal, respiratory illness and test demand in the second quarter were at levels that we would typically see this time of year. Inventory levels at distribution were low as we exited the first quarter and remained that way as we entered the third quarter.

Spending during the quarter was also as planned and representative of our ongoing R&D investment and the increase in the size of our US sales force.

Overall, we had a productive quarter. Sales and operating margin were a bit better than we had planned. Randy will walk you through these details shortly.

And we made pretty good progress with the two key initiatives that we are likely to drive sales with in the next year or so. Let me walk you through where we are with each of those.

Let's start with Sofia. We did receive a CLIA waiver from the FDA in the second quarter for Sofia Influenza A-plus-B for nasal and nasopharyngeal swab specimens across all age ranges and have now launched in both the US hospital and physician office segments.

Our placement rate improved during the quarter, which is encouraging given the low prevalence rate in customer interest in discussing flu this time of year.

Other assays for HCG strep and RSV are planned to follow shortly and we would expect by the first quarter of 2013 to have a menu of 4 tests in the United States and 6 tests in Europe, with still others to follow throughout the year.

The other key near-term initiative is AmpliVue, our handheld disposable molecular platform that combines isothermal amplification with traditional lateral fluid detection.

We received a CE mark for our C. difficile product in March, completed US clinical trials in the second quarter, and have been building inventory for a European product launch in the fall and an anticipated launch here in the US before the end of the year.

We expect assays for MRSA for blood culture confirmation, Group B strep and pertussis to follow shortly.

I'd like now to turn to the medium-to-longer-term timeframe in terms of likely commercial impact.

During the quarter we made progress with the rest of our molecular program. We received CE Mark for our Direct specimen PCR assay for C. difficile in early April and are conducting US clinical trials now.

We completed US clinical trials for our RSV and human metapneumovirus assays. Our HSV and VZV assays remain in development and are on track to enter clinical trial this half of 2012, with other PCR assays to follow shortly.

As I've previously disclosed, we're aiming to have a menu of 20 targets that can be run on our Wildcat platform when it launches in 2014 and at this stage, I remain confident that we can achieve that hurdle.

I should mention that we recently entered into a partnership with Life Technologies for the development and commercialization of Real-Time PCR assays on their new instrument system. Many of these assays will be portable to Wildcat as well.

With respect to Project Wildcat, specifically with the development of the platform, we remain on track at this stage. Our primary focus is in ensuring that we keep our commitment to the Northwestern Global Health Foundation. That commitment is to develop and deliver an inexpensive, fully integrated molecular platform that can reduce the cost of HIV viral load and TB testing in Africa in 2014.

We believe that the key to achieving this goal is in the development of a low-cost cartridge and that our proprietary PhaseGate extraction technology is the key to delivering on that promise. We've achieved a number of our early development milestones and expect to have our cartridge design completed by the end of this year. Once we have achieved that particular milestone, our confidence in our ability to deliver Wildcat on time for both the developing and developed markets will improve dramatically.

And finally, I'd like to bring everyone up to date on Project Bobcat. As a reminder, Bobcat is an automated multiplexed DFA analyzer that will relieve the clinical virologist from the burden of reading numerous DFA slides.

Due to the breadth of the clinical trial work involved, Bobcat has been delayed by another year as the prevalence for all virus types was just not high enough in the first quarter of this year as we were attempting to complete the US clinical trials. In particular, the number of Flu B positives was just too low.

The clinical results from other higher-prevalence viruses, like Flu A for example, were very good and we therefore remain hopeful that Bobcat could be an important product for the clinical virologist, but we'll need to wait until the next respiratory season before resuming clinical trials.

To summarize, we're focused on two main near-term objectives -- the commercialization of Sophia and AmpliVue and the development of new assays from our product pipeline.

While there is always uncertainty around commercial and development activities, clinical trials and regulatory clearance timetables, we are nonetheless very encouraged by the milestones we've reached thus far and are confident in our ability to execute against our goal of becoming a broader-based diagnostic company with reduced seasonality and volatility.

With that, Randy will cover some specifics on the second quarter financials and then we'll take your questions. Randy?

Thank you, Doug.

As mentioned, for the second quarter of 2012, total revenues grew 12% to $30.9 million, compared to $27.5 million in the second quarter of 2011.

Global sales of infectious disease products were $18.8 million, as the category increased 23% from $15.2 million in the second quarter of 2011. The increase in revenue was primarily due to influenza sales in the quarter.

Strep A revenue also grew in the quarter by 11%, compared to the same quarter of last year.

Revenues from DHI's Respiratory DFA business also contributed to the category, growing 12% over the second quarter of 2011.

Our Herpes product line grew 4.0% in the quarter.

Revenues for the Women's Health category increased by 3.0% in the quarter to $8.7 million, led by a 3.0% growth in Pregnancy and 8.0% growth from Thyrotain.

We also saw quarterly growth from our Bone Health business, of which revenues increased 4.0%.

Our Gastrointestinal product category revenues were $1.6 million in the quarter.

Gross margin in the second quarter of 2012 was 55%, compared to 54% in the second quarter of 2011. The slight improvement in gross margin in the quarter was mostly the result of product mix from influenza sales. This improvement was partially offset by higher one-time expenses related to a transition to a new packaging and fulfillment partner, which was completed in the quarter.

Operating expenses were $21.4 million in the second quarter of 2012, compared to $20.1 million for the second quarter of the prior year.

Research and development costs in the second quarter were $6.8 million, compared to $6.2 million in the second quarter of last year. The increase was largely due to increased efforts associated with our development of additional diagnostic products, including clinical trial costs for these products and outside service costs. We expect R&D expenses to total between $29 million and $30 million for the full year.

As Doug mentioned, we recently entered into a partnership with Life Technologies for the development and commercialization of assays on their new molecular instrument system. Under the new arrangement, we will receive certain payments from Life Technologies in connection with development activities that will be reflected as part of contract revenues as early as the third quarter of this year. As we move forward, we will provide more details on the arrangement and its financial impact.

Sales and marketing expenses in the second quarter of 2012 were $7.7 million, compared to $6.3 million in the second quarter of 2011, driven by our investment in our commercial organization, which incorporates increase in the number of sales representatives and associated training and travel costs, as well as higher commissions relating to our increased revenues. We expect this quarterly spend in sales and marketing to continue in the third and fourth quarters.

Expenses for G&A decreased to $5.1 million in the second quarter of 2012 from $5.8 million, primarily due to lower incentive compensation.

Stock-based compensation expense for the second quarter was $1.7 million and amortization of intangibles was $3.5 million.

Our tax rate for the second quarter was 35%, as compared to 34% in the second quarter of last year. For 2012, our 35% tax rate does not assume any benefit of the Federal Research and Development Tax Credit. For the remainder of the year, we expect our tax rate to be approximately the same if the R&D tax credit is not approved by Congress for the 2012 tax year.

Net loss for the second quarter of 2012 was $3.1 million, or a loss of $0.09 per share, as compared to net income of $3.7 million, or $0.11 per share, for the second quarter of 2011.

On a non-GAAP basis, excluding amortization of intangibles and stock compensation expense, net income for the second quarter of 2012 was $200,000, or $0.01 per share, compared to net loss of $1.1 million, or a loss of $0.03 per share, for the same period in 2011.

In the quarter, operating activities provided cash of $1.2 million, offset by cash used for investment activities of $2.9 million associated with the purchase of capital equipment.

During the second quarter, the Company did not borrow, nor pay down, any amounts associated with its senior credit facility. As of June 30, the outstanding balance on this facility was $19 million.

For the six-months ended June 30, total revenues were $68.8 million, compared to $87.1 million in the first six months in 2011. This revenue decrease for the first six months in 2012 was primarily driven by a 28% decrease in sales of infectious disease products from the first six months in 2011, a year that exhibited more normalized ILI activity.

Gross margin for the six months in 2012 was 58%, compared to gross margin of 63% in first half of 2011. Our margins were primarily affected by unfavorable product mix associated with lower volumes of influenza products.

Net loss for the six months ended June 30th was $3.1 million, or $0.09 per share, compared to net income of $7.8 million, or $0.23 per diluted share, for the same time last year.

On a non-GAAP basis, excluding amortization of intangibles and stock compensation expense, net income for the six months of the year was $4.0 million, or $0.12 per share, compared to net income of $12.9 million, or $0.39 per diluted share, for the same period in 2011.

As of June 30th, our cash on the balance sheet was $19.9 million and, as mentioned previously, $19 million was outstanding under the senior credit facility.

And with that, we conclude our formal comments for today. Operator, we are now ready to open the call for questions.

Thank you, sir. (Operator Instructions) Steven Crowley, Craig-Hallum Capital.

Good afternoon, gentlemen, and congratulations on the progress with the new programs.

Thanks, Steve.

The partnership you've disclosed here with Life, it sounds like you'll be developing some product. They'll be reimbursing you for some of that development and the hitting of milestones. Is the expense related to that development effort contained in that $29 million to $30 million R&D number? Or there'll be contract revenue and there'll be some contract cost of goods sold that'll move some of that to different places?

They'll be contract revenue and the R&D will still be within the $29 million to $30 million that we said that we would spend for 2012, Steve.

Okay, so there will be some incremental R&D-type costs that won't fall into R&D. Should we think about that contract revenue as reasonable margin stuff? Or is it a means to expanding that menu cost-effectively that you alluded to for Wildcat?

We'll go through the specifics of our development agreement with Life next quarter. At this time, we're simply disclosing that we're likely to receive cash in Q3.

Okay.

Some portion of which will be recognized as contract revenue.

Okay.

Once we determine the likely impact in Q3, we'll give you an update, Steve.

And just to be clear on your historical efforts, Life announced that they were going to be in certain countries or geographies within Europe selling some of your open-box assays. Was that the prior kind of working relationship that they had disclosed?

That's right and that's a completely different agreement. In this agreement, we're talking about the development of assays for a brand new instrument platform not yet launched.

Okay. Now, in terms of the commercial build-out or the build-out of your commercial organization, you had some pretty ambitious plans there. The inference I got from Randy's comments is that you'd made pretty good progress and thus were seeing kind of the sales and marketing run rate, ex-commissions that are variable with your product sales. Can you bring us up to speed on what you've been able to do with the commercial organization?

Sure. The US sales organization is now fully staffed and trained. And I think Randy was suggesting directly that you can expect sales and marketing expenses to be equivalent to the second quarter over the next couple quarters.

I would add, Steve, anticipating your follow-up here, that interestingly, we're seeing no lag effect with the newly hired sales representatives and of course that ties to commissions and all that, as you asked. In fact, on average, the newly hired folks are placing more Sofia analyzers per day than our more seasoned sales people. And to me, that means that we've either hired very good talent, or our training program is terrific, or the Sofia and the Influenza A-plus-B product truly are addressing what our customers want. Or maybe all of the above.

And in terms of the hot buttons that you've been able to hit with the early adopters of Sofia, I know there's a list of benefits and features that you presented to us, but are there a couple that are resonating in particular with the early adopters?

Objectivity is key for particularly in the physician office segment. Physicians also love the walk-away mode. Aand I would tell you that, when we do present data, the data are convincing, suggesting that the product performance of Sofia Influenza A-plus-B is dramatically better than what's out there today, including our own legacy product. And as demonstrated in a number of papers, somewhat closer to the performance of PCR.

Great and --.

Scott Gleason, Stephens, Inc.

Doug, Randy, thanks for taking my questions.

Sure, Scott.

Doug, can you give us a little more detail in exactly kind of what's going on with the sales infrastructure, kind of where you guys stand now in terms of total rep count and maybe where that might go, kind of going forward when we look at the end of the year in 2013?

It's truly evolved, Scott, so I hate to do this to you, but no I'm not going to answer the question specifically. Our sales organization end total is pretty much where we've said that it would be in terms of numbers. Some of the numbers of territories will have changed depending on -- actually have changed as a result of how we've gone to market. And so, unfortunately, I'd rather not disclose that given the fact that I know that we have competitors on the line.

Okay, great. And then, Doug, can you talk a little bit about molecular flu testing? When we look at the hospital channel specifically, where do you guys kind of point or where do you believe that kind of molecular is currently is, on a market share basis, in the hospital channel?

Can you rephrase that question, Scott? I got lost -- (multiple speakers).

Molecular testing versus amino assay methodologies. If we look at market share today in the hospital channel, where do you think molecular is today, on the percentage of tests that are performed?

Yes, now I understand the question. I'll have to answer it slightly differently, I think, because I can't give you the total market share simply because I don't really know the total amount of flu sales that are molecular.

What I can say to you is that, during the pandemic, we suspect that somewhere between 5% to 8% of the lateral flow volume in the hospital segment was converted to molecular-only testing and that our opportunity moving forward, given the product's performance relative to PCR, is to put Sofia on the front end of that process and gather some of that back. I'd have to sit down and go through some serious math, I think, to answer your question directly, though.

Okay and great. Just a last question. You know you guys talked about, when we look at the Wildcat system, maybe costs in terms of your costs to manufacture the disposable being a differentiator. I think we're hearing that from more folks on the molecular side. Can you maybe talk about where your COGS point, on a per-test basis, what that might look like with the Wildcat platform or where that might go with volume over time?

Of course we have an internal target and it is significantly lower than what you've heard from other folks. Other than that, I'm not going to disclose yet where we are likely to be.

Okay. Thanks for taking my questions, guys.

Sure.

Scott.

Nicholas Jansen, Raymond James & Associates

Hey, a nice quarter. Just a question on the Bobcat obviously being delayed. How will that impact your guys' revenue assumptions for Bobcat within your kind of 2015 targets?

Obviously it will have an impact, because we've pushed this out by a year. What we said during our Analyst Day in Boston a little over a year ago was that we expected to exit 2014 at a run rate that would include about $100 million in annualized incremental revenue and that $30 million of that was Bobcat.

Obviously we are no longer forecasting $30 million for Bobcat, actually, in 2015. Instead, it'll be significantly lower in that particular year. The good news is, though, that with the visibility into the markets that we hope to address there is upside, we think, with Sofia and our core business and we're still aiming at an incremental of about $95 million to $100 million.

Obviously, key changes, in addition to the Bobcat reduction, would be the reduction also of Thyrotain and we expect a slight increase based on what we know today in terms of molecular. And again, just to make sure that we frame this properly, the $95 million to $100 million that I'm talking about is our internal aspirational target, the number that the team is trying to go get.

Thanks. And then just thinking about Wildcat, certainly there's growing competition within the molecular field. Maybe just talk about your time to market and I guess first mover advantage and what you think will drive successful placement of that device once it is officially launched.

Sure, Nick. The number of potential entrants in the clinical molecular diagnostic space, from our perspective, appears to be about the same as it has been. We're uniquely positioned here in San Diego and we've seen almost everything that's out there.

The recent acquisitions and product introductions, from our point of view, are simply acknowledgement of what the [IVD] industry knows, that the pace of demand for molecular assay performance is likely to quicken and that there are customer needs in segments that are not currently being addressed by the existing players.

We believe firmly that there are three key needs that, if addressed, will enable a new platform in the space, like Wildcat, to succeed.

First, an instrument, even when fully integrated, must be reasonably inexpensive to manufacture. And second, the specimen and reagent processing mechanism, which in our case is a cartridge, must be significantly less expensive than what is out there today. And third and equally important, the menu of molecular assays needs to be large enough to justify the placement of the instrument.

Based on where we're at, and where we're likely to land with instrument and cartridge costs, and with 20 or more targets before launch, I think we'll be competitive. And I really like our chances with Wildcat at this stage.

And then maybe just one more in terms of maybe if you could comment, and maybe you won't, but in terms of new products, what you've launched since let's say August of last year. Is there a number that you've kind of hit in the second quarter? Or is it just too small to kind of talk about? Thanks.

Sure, Nick. The products that we've launched -- I assume you're referring to the molecular products because we've talked a bit about Sofia already. Due to the light respiratory season, we've only just started to gain traction with our Influenza A and B and our human metapneumovirus Real-Time PCR Assays, the ones that are approved here in the US. In other words, traction has been understandably modest.

I would say, however, that we're finding it easy to engage key opinion leaders and to get them interested in trying our reagents, due in part, I think, to shorter turnaround times and ease-of-use, which is encouraging as we continue to develop a broader menu. I hope that's what you were looking for, Nick.

That's great. Nice quarter, guys. Thanks.

Thanks.

Brian Weinstein, William Blair.

Good afternoon. A question for you on Sofia. As you guys are out now beginning to detail the product, what's the biggest hurdle you're running into when an account is turning you down, at this point?

I think the timing is not ideal, but, frankly, our close rate has been quite high. And we're seeing a close rate that would be actually pretty impressive. And I would say the first call and second call close rates are actually quite good. So it's not exactly what you're asking for, Brian, but I don't have a major objection that we're running into right now, simply because we're talking about flu.

In the case of a QuickVue customer, we're showing that at approximately the same price point the customer can upgrade to a much better-performing product that's subjectively read. So those conversions, as you can imagine, are going extremely quickly. And then for the competitive, we're actually, based on the data alone, gaining a lot of traction.

Okay. And as we think about, let's say, you've set a target of kind of the first 1,000 and telling us when you hit there. But as we think about that first 1,000, how would that break out between the physician office and the hospital setting? And how would the utilization per system differ if we were trying to think about building it up that way? Thanks.

The larger proportion of analyzers will be in the physician office segment, simply because of -- it launched simply because of market share. And we've said before that our market share in the physician office segment for flu is at around 50%, perhaps higher. And we've said in the hospital segment that it's less than 30%. So, obviously, places that currently use QuickVue and that are very easy conversions, there are more of those in the physician office segment.

In terms of utilization per instrument, we don't see a great deal of difference, because right now we're targeted at the larger physician office practice who are fully utilizing at least one analyzer and when they need more analyzers our customers are actually ordering those and the same would actually be true in the hospital segment, at least so far.

Okay. And then my last question is kind of a housekeeping one, and that is that you said you expect to have 4 tests approved in Q1'13 in the US and 6 outside the US. So two questions there -- number one, of those additional 3 you mentioned HCG had strep and RSV. I'm assuming that you're looking for CLIA waiver on all 3 of those by that timeframe and then what would be the other 2 tests that you would expect outside the US in that timeframe? Thank you.

Sure, Brian. Strep, pneumo, and legionella ex-US.

And you do expect to get CLIA waiver on the other 3 in the US by that timeframe?

I would say we will certainly file.

Okay. Thank you.

But you know that is subjective. So it's up to the FDA, but we certainly would intend to get CLIA waiver if possible.

Jeff Frelick, Canaccord.

Yes, Doug, can you give us a sense of the split with the Sofia, between penetrating your existing Quidel accounts versus competitor accounts?

It's evolving every day, simply because we're placing so many in the physician office segment right now. But early on, we were assuming about a 50% cannibalization rate and we actually were about a 60/40 split, 60% new business to 40% cannibalization. But that's changing, as I said. Every day that we spend in the physician office segment we're getting, obviously, more and more cannibalization, so I think our original estimate may actually turn out to be close to the truth as we exit 2012. But we'll have to see. So I think it's going to be either 50/50 or slightly heavier on the cannibalization than that by year-end.

Okay. With respect to the molecular test, the open-box, 4 assays in Europe, 2 in the US. Maybe not giving us the revenue contribution just yet, but do you care to maybe point out maybe how many customers you have now both between Europe and US.?

No, I'm not going to tell you. I'm sorry, Jeff. I'm not going to tell you how many customers we have. What I can tell you is that I described the traction as modest and obviously a lot of people are looking, and have looked, but for the assays that we've launched we don't see a high prevalence at the moment, so.

How about AmpliVue? How's that being positioned into the European hospital market?

Well, as I said in the script, we intend to be able to launch in the fall. And at this stage, we're working through distribution partners for most locations and we are selling some directly. We intend to sell directly in Germany. So I like what we're hearing so far. I think that there's an opportunity with the product and certainly there's a lot of enthusiasm on the part of potential distribution partners.

Great. Thanks, guys.

Sure.

Tycho Peterson, JPMorgan.

Hi guys, this is Ramesh Donthamsetty in for Tycho. Thanks for taking the question.

Sure.

Just on AmpliVue first, I guess. Besides, I guess, the several additional products that you might have in line, I guess within C. diff and maybe just Europe specifically here, I mean, do you see that being a large opportunity in itself, C. diff, within a specific geography? Or do you really have to sort of add onto the menu of AmpliVue products?

I would tell you that the market research that we've conducted suggests that customers find the format to be unique. And they are interested and they're interested in just looking a C. difficile early on.

Your question is a good one, though. Obviously, with a greater menu, we think that that improved slightly. But, for the moment there, we believe, is pent up demand in Europe. And based on our market research here, we're sort of convinced there is pent up demand for this sort of product that would be a nice upgrade for those folks who are currently doing EIA testing.

And then, just in terms of Bobcat coming -- at least delayed here, is the, I guess, the priority now in achieving that sort of $95 million to $100 million incremental, you kind of suggested it's shifted now to Sofia, AmpliVue and even to Wildcat, is that the interpretation that we should take from -- to play it by ear?

Well, Wildcat won't be early enough. But you are right that as we look at what's going on with Sofia, we look at where we're at from a menu development perspective, when we get more visibility to the size of the markets that we're after, we're highly encouraged and therefore have adjusted our own internal forecast.

We also like, as I said, the data that we're getting back on the interest in AmpliVue and the format. But, truthfully, there's no real way of knowing how well we're going to do with that product until we actually launch. So, right now, all I would say is our forecast, by definition, is wrong. It's either too high or too low. I mean, there's just no way of pegging it at this stage.

Okay. Thanks, guys.

Sure.

Thank you.

Zarak Khurshid, Wedbush Securities.

Good afternoon, guys.

Hey, Zarak.

Hey. Hey, Doug. Thanks for taking the questions.

Sure.

So, can you just provide kind of an update on your views of Europe and then the situation there and how that may or may not be impacting the business?

For us it's pretty simple. We don't have a whole lot of foreign exchange -- if I'm understanding the underlying reason for your question. And right now, as a percentage of our total, it's still about 15%. So we don't see a macroeconomic impact on our business. And further, for the tests that we sell there, they're related to infectious disease and that generally is somewhat less affected by the economy. Is that sort of where you were heading with the question?

Yes. Yes, I was less worried about the FX issue and more thinking along the lines of pricing pressure. And I think some of your competitors have had some margin or pricing compression in Europe and just wanted to get a sense if you've seen anything like that.

I would suggest to you that for rapid testing, in particular, the pricing can't get a whole lot lower in Europe. So, it's always been competitive. I don't see it as being more competitive than it is today. And I would say the same is true of Japan. It's a super price-competitive market and it hasn't increased. It's just been that way for a while. So I think when you hear this from other folks, I think they're talking about different segments and different products than what we're talking about.

Got it. That's helpful.

Yes, Zarak, and the 15% that Doug mentioned, that's our total international business, not specifically Europe, so Europe is --

It's smaller.

Yes. It's like, maybe, 5% of our total sales, so it's not a significant revenue generator for us at this point.

Understood. Thanks for that color. And then, maybe, can you just talk about some of the trends and behaviors here either at the distributor or hospital level following the Supreme Court ruling on affordable care? Are you seeing any kind of change in behaviors that could impact your business?

We do see more decisions made at an IDN level which, in some cases, have had an impact on physician practices, but I wouldn't call it a huge trend quite yet. I do hear from the sales organization discussions that we're having at the IDN level, but I'm not sure I could describe a huge trend at this stage.

Got it, okay. And then shifting gears to Sofia, it sounds like the traction's going pretty well there. As we sort of look out over the next few quarters, can you maybe talk about the gross margin on that product and how that could be lifting or dragging the overall corporate gross margin?

Gross margin for Sofia Influenza A-plus-B, as we've previously disclosed, is expected to be in the same range as our QuickVue flu. Obviously, in this particular case, we're amortizing instrument systems, which is below the gross margin in some companies. But for us I guess we include it in the total. So it will have a modest impact. Remember, though, that the cost of building the analyzer is low and we're depreciating it every three years, so I wouldn't call the impact dramatic.

Okay, great. Thank you.

Sure.

Ross Taylor, C.L. King.

Hi. Most of my questions have been answered, but just two minor ones left. First, I wonder if you could comment at all about what percent of the mix of your infectious disease revenues this winter you expect might come from Sofia.

And my second question is I didn't quite grasp the answer to your earlier question on Bobcat, but have you reduced your long-term revenue expectations for that product at all? Or have you really just pushed things out by one year?

No. We've just slid them to the right on the chart, so we have no reason to believe that we don't have a product that's going to meet initial development requirements. We still think there's the same market of 700 to 1,000 clinical virology labs here in the United States. And we still think there's a market ex-US in countries like China and Hong Kong, as examples. So there's nothing that's changed fundamentally. We just need a prevalence rate for all 8 virus types.

Okay.

The percentage of revenues from Sofia, no we don't have a good number for you yet.

All right. Thank you.

Steven Crowley, Craig-Hallum Capital.

Hey guys, thanks for taking my questions. Just a couple follow-ups. You mentioned in the prepared commentary that influenza was a particularly bright spot in that the slowest seasonal quarter. But there has been some news flow out of the Southern Hemisphere regarding a relatively active season. Did that have any bearing on your results and what might that variable mean or portend for you guys?

First, sales in Australia and New Zealand, in particular for us, would be low in the quarter. And I've said this before, Steve -- there's very little predictive value from the flu experience in Australia and New Zealand. Nevertheless, anticipating the question, I looked up a few facts.

One, it has been reported that Australia and New Zealand are experiencing unusually strong flu at this time. Two, the Influenza A virus has been nearly 100% H3N2 Victoria/361 and the Influenza B, which has been low in numbers, has been -- has actually two lineage strains, Brisbane/60 and Wisconsin/1, but the prevalence there extremely low.

And the vaccine for this year had the H3N2 Perth/16 and the circulating H3N2 strain just mentioned is a drift variant of that vaccine strain. So the vaccine is not exactly a perfect match, but in areas where there had been high immunization coverage, illness due to flu has actually been mild, which suggests at least some level of vaccine protection. What this means for us, Steve, in the Northern Hemisphere, is unknown.

Okay. And then in terms of Thyrotain, you had a more robust year-over-year growth quarter in Q1, a little less robust this quarter. What is that variability telling us and what are your latest thoughts on Thyrotain in the autoimmune franchise and how should we think about it?

Okay. First, Thyrotain are still small numbers, so it's easy to move things from a percentage basis. We continue to see good growth on a year-over-year basis, as well as sequentially, though we did see a slowdown in June orders from a very strong March. We anticipate low double-digit growth in the back half of this year, just as we've said before.

In terms of the franchise overall, I think it's going nicely. We're not spending a ton of sales and marketing on it at the moment, but it still continues to grow. The effort we are spending is being spent internationally and we have a number of ongoing projects ex-US that could turn out to be fruitful for us, I would say, as early as sometime in 2013.

That is all the time we have today. Please proceed with your presentation or any closing remarks.

Well, this concludes the call for today. Thanks, everybody, for your time this afternoon and for your continued support. Take care.

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